Buyer's past missed in sale

Sale of foreclosed site to rehab contractor with criminal past a concern

Updated 6:12 am, Wednesday, January 9, 2013

The abandoned building at 14 Myers Alley in Schenectady, N.Y., Tuesday, Jan. 8, 2013. The city agreed to sell it to Gary Pappas for redevelopment. City officials have since learned Pappas was previously convicted for embezzelment and tax fraud in Colorado. (Cindy Schultz / Times Union)

SCHENECTADY — The city has chosen as its first contractor for its major building rehab program a man who was previously convicted of stealing from his employees' pension fund, and then went to prison for failing to pay back taxes owed to the federal government.

The city has agreed to sell a foreclosed three-story brick apartment building at 14 Myers Alley to a company called Regeneration Construction, run by Gary Pappas and his wife, Lynn, for $13,000. It's the first building to be put into Mayor Gary McCarthy's Home Ownership Made Easy in Schenectady program, the mayor's largest initiative to turn the city's blighted housing around.

The city has foreclosed on hundreds of properties, and wants to enter into agreements with contractors to have them purchase the homes for minimal money, rehabilitate them and then sell them.

Pappas said he would invest $75,000 in the property, and he would live on the first floor and renovate the second floor as a rental property.

But what City Council members said they didn't know when they voted Dec. 10 to give Pappas the property was that he pleaded guilty in Colorado in May 2004 to embezzlement for taking money from the employee benefit plan at his business Pro Auto Parts Inc., and for keeping federal payroll taxes. He was sentenced to three years' probation, 10 months of home detention and to pay $65,778 to the Internal Revenue Service and $13,917 to his victims. But in 2006, a federal judge sentenced him to 18 months in prison after he had failed to pay restitution and for falsifying information to his probation officer.

A news release from Mayor Gary McCarthy's office touting the Myers Alley deal said that Pappas is a native of Rotterdam, and that his wife is a native of Colorado. They are returning to Schenectady "after living out West for the past 18 years," the release said.

Attempts to reach Pappas or his wife were unsuccessful. On Tuesday, a man who was working at the Myers Alley building, who identified himself as a relative of Pappas, said Pappas was "in a meeting" and that he would pass on a message to him. No one was home at the Palm Avenue house in Rotterdam where the Pappases registered their Regeneration Construction LLC with the state. That LLC was set up in June.

"Our desire is to help Schenectady continue its turnaround," Pappas said in the city's Dec. 10 news release.

Some City Council members say they were wary of Pappas, peppering him and Building Inspector Eric Shilling with questions in a meeting before the Dec. 10 vote.

They were assured that his background checked out.

Then some City Council members were emailed last week by an ex-wife, who was married to Pappas when he was indicted, and another woman about his past. When they brought up the concern to Shilling, who is running the rehab program, they engaged in a back-and-forth email conversation over the next 24 hours, which concluded with Shilling saying he talked with Pappas and believes Pappas took the fall for his ex-wife and that he is turning his life around.

Shilling reiterated his confidence on Tuesday, saying the Pappases are "two of the most faithful and giving people I've ever come across," and showing documents the Pappases had to submit to bid on the Myers Alley building. Four contractors bid on the project, and Pappas had the lowest bid. The Pappases had two letters of recommendation from people in Colorado who said Gary Pappas oversaw renovations in their home as part of his last job with Grateful Heart Construction.

On Tuesday, McCarthy said no one knew about Pappas' past before receiving the emails. "The bank letters all checked out and that's what you worry about if someone has assets to do these projects," the mayor said. "We believe he's fully capable and going to complete the project."

McCarthy and Shilling also emphasized that the city has invested no money in Pappas' project. If Pappas does not complete the renovation in 120 days, he will give up the right to own the property.

City Councilman Vincent Riggi said council members would have never voted to give the home to Pappas if they knew about the previous conviction and prison time.